Australia's tough-talking PM to tread diplomatic path in Indonesia

CANBERRA (Reuters) - Tony Abbott relishes a fight, but Australia's new conservative prime minister needs to find a reserve of diplomacy before his first overseas trip to Indonesia, with time fast running out on his "stand or fall" election pledge to stop asylum boats.

Abbott, a former champion boxer with a reputation for combativeness, arrives in Jakarta on September 30 for talks with President Susilo Bambang Yudhoyono on his promise to have Australia's navy turn asylum-seekers away at sea and break the business of people traffickers operating from Indonesian ports.

The plan is already raising hackles in Indonesia, Australia's northern neighbor of 245 million people, where lawmakers including Foreign Minister Marty Natalegawa have sharply criticized Abbott's plan to buy up fishing boats and pay Indonesian villagers for intelligence on people-smuggling gangs.

Abbott, in his first news conference after his September 7 election victory, nominated Indonesia as Australia's "most important single relationship" and sought to play down perceptions of a diplomatic rift before even being sworn in.

"I'm determined to get the relationship off to the best possible start and the best way to do that is to indicate to you that I'm not going to conduct discussions with the Indonesians via the media," he said, extending a rare olive branch.

But time may be against him, with asylum boats still coming and Indonesia holding an election next year to pick a successor to Yudhoyono - Indonesia's first directly elected president - and with no candidate likely to be as accommodating to Canberra as the former general who has spent a decade in power.

"The next president may not be outright hostile, but they are going to expect that Australia handles the Indonesian relationship in a more circumspect way," says Greg Fealy, an Indonesia expert at the Australian National University.

"SBY has been often willing to turn the other cheek," Fealy said, referring to Yudhoyono. "Any suggestion now that Australia is being pushy, or that Australia is being driven by domestic issues, that will go down quite badly in Indonesia."

BRITTLE RELATIONS

Both G20 members, Australian and Indonesia have a history of occasionally brittle relations dating back to the rule of former strongman Suharto between 1966 and 1998, including Indonesia's 1975 invasion of tiny East Timor, a former Portuguese colony northwest of the Australian city of Darwin.

The nadir came when Australia led international troops into East Timor following its bloody 1999 vote for independence, an intervention overseen by Australia's last conservative prime minister, John Howard, who was a mentor to Abbott.

Since his 2004 election, Yudhoyono has steered a rebuilding of relations, helped by Australian aid to Indonesia worth A$574 million ($543 million) last year. Canberra also backed its efforts to counter home-grown Islamist militancy, lending police advisers.

But tension is rising anew over the arrival in Australia of thousands of asylum seekers transiting through Indonesia, and Abbott's successful attempt to out-muscle center-left Labor opponents with a promise to voters to "stop the boats".

While the pledge resonates in Australia, it is not shared in Indonesia, which sees more pressing issues in addressing poverty and a slowdown in economic growth.

Since 2008, Indonesia's stock exchange has doubled in value and its economy has grown at an average annual rate of more than 5 percent for a decade, giving rise to a middle class larger than Australia's 23 million population.

Australians usually see Indonesia one dimensionally as a poor country in need of aid or as a hot-bed of corruption and militancy, largely oblivious to its growing global influence as a moderate Muslim power. Egypt and Tunisia sounded out Indonesia on democracy during Arab Spring unrest.

Indonesia's democratic flowering also contrasts with criticism of Australia from rights groups and the United Nations over Canberra's hardline asylum policies, which even conservative U.S. think-tanks have called a "flashpoint" for the growing global problem of unauthorized immigration.

But Abbott needs Yudhoyono more than Yudhoyono needs him, not just to stop the asylum boats dividing voters at home, but as a backstop and ally to Australia's integration with Asia.

When Australia does not see eye to eye with Indonesia it can sour Australia's relations with the rest of the region.

Indonesia under Yudhoyono supported Australian involvement in regional summits, despite resistance from some other Asian neighbors, while both countries have worked with one another in global economic forums like the G20.

But Fealy of the Australian National University said the frontrunner to replace Yudhoyono, Jakarta governor Joko Widodo, had little international experience and was broadly nationalist, like other aspirants to succeed Yudhoyono.

"He is probably going to be very unimpressed by Australia coming in and trying to be too assertive," Fealy said of Widodo. "Indonesia is starting to be an important player on the world stage, and it's eclipsing Australia."

Yudhoyono has usually been willing to soften criticism of Australia by his officials, but he was also the only Indonesian leader to withdraw an ambassador from Australia, ironically over a 2006 row about Australia granting asylum to Indonesian separatists from Papua province.

Indonesian Foreign Minister Natalegawa told Reuters after a speech to the Asia Society in New York that he was hopeful that having won power, Abbott would moderate his intentions on the asylum boat issue.

"We'll see. Governance has a way of enlightening all of us," he said.

(Additional reporting by Daniel Bases in NEW YORK; Editing by Rob Birsel and Mark Bendeich)